Throughout the 2017/18 financial year, flexible pension withdrawals totalled more than £6.5 billion, the highest it has been since the introduction of Pension Freedoms in 2015 (Source: HMRC). In the first three months of 2018 alone, just under £1.7 billion was taken from pension funds by 222,000 people; an average of £7,644 per person.

Of course, some of those people will be making withdrawals as part of a sensible and sustainable plan. Others, however, may be letting the new-found Pension Freedoms go to their head, which could put them on course for a nasty shock.

The freedom to access this money from the age of 55 has had a positive effect on many people who are enjoying, or nearing, their retirement, for some it brings the opportunity to:

  • Retire early
  • Help their children and grandchildren financially
  • Achieve their desired lifestyle sooner
  • Do the activities they have always dreamed of

However, with freedom comes the need to be responsible and the threat of things going very wrong, very quickly.

Being sensible with your pension funds will help you to steer clear of the common risks associated with having full control over your retirement income, which include:

1. Underestimating your life expectancy

The money you have when you retire needs to last for the rest of your life. With modern medicine and science helping us to live longer, that could mean that you need to support yourself for 20, 30 or even 40 years!

2. Underestimating the cost of retirement

We may be living longer, but that does not mean that we remain healthy throughout retirement. In fact, research published in The Lancet predicts that the number of people needing high-dependency care in later life will increase by almost 90% by 2035.

It can be easy to assume that your living costs might not change much during your retirement. Or, you may even think that the cost of living will decrease, as you begin to slow down and reduce the number of activities you take part in. However, for many people, the cost of living in retirement fluctuates. For example, it may:

  • Start high to account for the activities you do now that you have more free time
  • Fall as you begin to take a step back
  • Rise again due to the cost of care and/or accommodation in later life

By spending too much, too soon, you could find that you do not have enough left to cover those essential costs as you get older.

3. Ignoring inflation

The cost of living is almost guaranteed to rise as you get older, which means that you are at risk of losing money in real terms, due to inflation.

Inflation is a hidden enemy, and one that you will need to do everything you can to mitigate, as you may be retired for a long time, allowing the value to erode further.

If you have a fixed income in retirement, such as an Annuity, you may see the buying power of that income decrease over time. To make matters even worse, research has shown that the usual cost of living for retirees is increasing faster than the normal expenses at other stages of life.

4. Holding money inefficiently

A lack of planning may lead to over-withdrawing, especially as research has shown that 80% underestimate life expectancy (Source: Retirement Advantage). If you find yourself with surplus income at the end of each month, it’s probably a sign you are withdrawing too much from your pension. That may mean you are paying unnecessary tax.


If that is the case, you will need to keep the excess money somewhere. Many saving accounts have interest rates which are below inflation and will see your money lose value in real terms. Therefore, it is best to make a plan and only withdraw the amount you need to cover whatever it is you’re paying for.

5. Not having a plan

Unless you head out and buy a Lamborghini, or make some extremely bad decisions, you probably won’t run out of money, but a lack of planning and the hidden effects of inflation could mean that you lose more of your pension than necessary.

Financial planning will help you to remain financially stable through retirement, while meeting your lifestyle goals along the way. It will mean that you can enjoy increased financial confidence and peace-of-mind knowing that your money is working for you.

And, if you don’t know how to do that? We’ve got good news:

We do!

Come and talk to us to get started on your retirement planning and improve your chances of experiencing the retirement lifestyle you want, without worrying about running out of income soon after leaving your working life behind.

To make an appointment, please get in touch with Ben on 0113 262 1242.